Time preference & bad choices

Harry Clarke — one of the wise old hands of the oz politics blogosphere — has long been preaching the evils of smoking, drugs, gambling, drinking and various other fun activities, and calling for government action. Instead of “doing bad things”, we should only play calm non-contact sports and generally stay in doors doing safe things like eating vegetables and praying.

And it looks like Rudd is going to oblige by hitting drinkers and smokers with extra tax.

One part of Harry’s argument has to do with time preference. Young people tend to have a high time preference (ie, they have a strong preference for now, compared with the future), while older people tend to have a lower time preference. Harry (being more “old” than “young”) comes to the conclusion that old people are right and young people are wrong. Therefore, young people need to be regulated, and when they get old (and have a lower time preference) they will see that the government control was for their own good.

This argument has a number of fallacies. First, time preferences doesn’t always decrease (for me it has increased).

Second, just because time preference changes that doesn’t mean it was ever wrong. At different times in your life it is reasonable to have a different set of preferences. Year 2000 John is entitled to disagree with 2009 John and I will probably have a different set of preferences in 2020. That doesn’t mean any version of me is “wrong”. Just different.

Third, even if one of the “young” and “old” versions must be right… it is not necessarily true that the “old” version is always right. Changing your mind does not prove that your new opinion is correct. Otherwise we simply need to find somebody who used to agree with Harry and now doesn’t… and their change of mind will prove Harry wrong.

I agree with Harry that some people make mistakes with their time preference. I think everybody makes mistakes with some of their preferences during their life. For instance, I think it is a significant mistake to go through life without ever having tried a hallucinogenic drug. I also think it’s a mistake to not travel. Or to be strongly religious. Or worry about getting rich. Or wear crocs. Having said that, I know I’ve made mistakes in the past, and I undoubtably will make more in the future.

Where I disagree with Harry is the idea that some external power should have the authority to “fix” other people’s preferences. I think that is an extremely dangerous game. If humans have difficulty working our their own ever-changing preferences, then it is even harder for us to work out other people’s ever-changing preferences. Especially if you must make a single rule for 21 million other people — most of whom you know nothing about. And that assumes that the authority is actually wants to help you, and are not pursuing other objectives such as getting elected.

Not to mention that whole “freedom” thing that is so out of fashion these days.

I recently saw a different version of the time preference argument, in an excellent essay by Ben O’Neill which won first place in the CIS Ross Parish Essay contest last year.

Ben accepts that a “too high” time preference can lead to destructive behaviour. His point was that the free-market encourages people to have a shorter time preferences as their future situation is a direct consequence of their current actions. If you make the “right” decisions then you get the future benefits. If you make the “wrong” decisions then you get the future costs. But under the welfare state this link has been undermined as success is taxed and failure is subsidised. Consequently, it is the welfare state which encourages a higher time preference by undermining the strength of the link between current action and future outcome.

Ben goes on to make an additional (and in my opinion less strong) point that a the free-market will lead to an ongoing decrease in time preference. He writes: “Because growth in capital and knowledge increases the productivity of future labour and savings and also increases life expectancy, time preference in a free society will tend to diminish over time”. Perhaps. But growth will also likely lead to more fun stuff to do today and the “diminishing marginal return on exchangeable goods” (which Ben mentions) will make it easier to cover future needs and then not have to worry about the future until you get there.

The logical first conclusion from this is to remove the welfare state. However, if that is ruled out then the secondary consequence from Ben’s thesis is that government paternalism should apply only to welfare recipients. People who, despite contrary government incentives, retain a low enough time preference to be net contributors to the government, should not be punished due to the mistakes (government-induced or otherwise) of others.

14 thoughts on “Time preference & bad choices

  1. Instead of taxing sins, why doesn’t the govt. just outlaw Original Sin? That would solve a lot of problems!

  2. I think you are wrong about Harry. I don’t think he is against contact sport. And I don’t think he regards freedom as evil, probably just dangereous. 😉

  3. However you’re missing one thing about Harry’s entire thesis.

    Harry uses his own personal preferences and hunts around to find ” studies” that validate is prejudices. He proudly announces how how much alcohol he communes (wine) at night and has no second second thoughts about how this measures up against his prejudices towards dope. I call it “personalized economics”. It’s basically bending economic principals to suit one’s prejudices.

    He’s essentially destroyed the word “externality” to the point where I can’t even stand the sight of its use.

    Just recently he announced that he may be voting for the Green party. I am sympathetic to that idea as I think his views are pretty much identical to those trogs.

  4. With The Australian Democrats all but dead I think an increasing number of people will regard The Australian Greens as a form of third party protest vote. I expect they will do well in the next election and not through any fault of their own (of which there are many).

  5. “Year 2000 John is entitled to disagree with 2009 John and I will probably have a different set of preferences in 2020. That doesn’t mean any version of me is “wrong”. Just different”.
    I think that’s true. The context of your life changes with changing circumstances. It’s pretty obvious really that you will make different choices at various stages of your life.

    “I know I’ve made mistakes in the past, and I undoubtably will make more in the future.”
    Also, true and unavoidable. Humans are not omniscient. Making mistakes doesn’t imply immorality on your behalf either.

    “Ben accepts that a “too high” time preference can lead to destructive behaviour”
    I think this can definitely be true because human prosperity requires long term analysis. ie: Hedonism is destructive in the long term. Humans unlike animals are able need to plan and analyse to survive.

    However, why can’t you just as easily argue that the elderly would have a higher time preference? They have less time to live and need to enjoy life now.
    Perhaps you could say that people with a high time preference wouldn’t make it to old age as much? But you still can’t guarantee that they won’t change their time preference once they hit old age.
    There are plenty of old people that engage in self-destructive behaviour. Too much pokies, alcohol, smoking, over eating etc.

    I think time preference is confusing because you are not distinguishing between good-for-you short term enjoyment and bad-for-you short term enjoyment.
    Also, some good immediate pleasures become bad if you go overboard (eg/ computer games). Determining these details requires thought and analysis (see lower down comment).

    Looking after your health is an issue of morality IMO. By Objectivism, this is because the standard of morality is your life. Some altruists would also argue (albeit implying contradictions IMO) that looking after your health is moral because your poor health could negatively affects others.

    Being a moral person requires thinking. Thinking isn’t something you can force people to do.
    Also, morality means free will. And initiating force negates free will.

    If we didn’t have a choice, it wouldn’t be a matter of morality. Do we say a lion is immoral when it kills and eats another lions cubs? (Incidentally, this is why original sin does my head in)
    Prohibition can never result in net benefit to society because it’s unnatural and it’s just not how humans need to operate.

    Some people would deny that being moral requires thinking – they might say it simply requires obedience.
    However, I don’t think most sane people deny that morality implies free will. And you simply cannot force people to be moral.
    This is why I think the state should only use retaliatory force in response to someone who has initiated force against another. And taking drugs is done to yourself, not to others.

    It is only proper to ban drugs from children because they do not have full human capacities and are developing them.

    So basically I think the part of Clarke’s argument that bases prohibition on time preference is pathetic and should be dismissed.

  6. Apparently John 2009 only has 1% of the atoms in common with John 2008. So quite literally he’s not the man he used to be. Letting go of your past really ought to be easier. Mind you I still blame John 2009 for all those earlier mistakes.

  7. John, I think the impulsiveness argument is correct – the average age of initiating smoking is 15.9 years and such people do have high discount rates.

    But my opposition to cigarette smoking is more paternalistic than that! Most of the mortality damage associated with smoking occur after age 65. Even if people aged 15.9 discounted at 3% they will only attach a very low weight to an increased probability of death at age 65 – I think about 0.2 – 50 years hence. Thus if you get a lot of pleasure from smoking now you might still be a ‘rational addict’. Hence it is not increased time preference which is driving my views opposing cigarettes and other drugs.

    It is really my view that nose-picking, pimpled kids are not very rational at age 15.9. They take risks as part of the process of growing up – some are very sensible risks and some risks are from the viewpoint of the wise and elderley very foolish.

    Brains don’t develop properly until around age 25 and their development is hindered by taking drugs. Both nicotine and ethyl alcohol are particularly harmful up to this age.

    It is mainly commonly accepted perceptions of ‘youthful stupidity’ rather than time preference that drives my paternalism. I think people should be encouraged to do positive, helpful things and avoid deadend pursuits and I am in favour of rational societies that operate on these principles.

    BTW I don’t pray and I am a carnivore.

  8. BTW I don’t pray and I am a carnivore.

    Yea we know Harry. You accused a follower of the Catholic Church as somehow being gripped by guilt if and when he masturbated as a kid. Your anti-catholic feelings are more than well known which would put you in good stead with the Green party, you are now attracted to.

    Incredibly you made that accusation, but when he answered back you then threatened legal action proving you’re just a plain hypocrite to boot, which would also put you in good stead with the Green party.

    ( For anyone that’s interested , it wasn’t me by the way)

  9. BTW I don’t pray and I am a carnivore.

    Yeah, that throw-away line by me was a bit cheeky. My point wasn’t that you’re a vegetarian bible-basher… though I do detect a sense that your risk preferences might be somewhat more conservative that some other people’s risk preferences, and I was colourfully dramatising that by taking it to the extreme of living life in a safety bubble.

    Not only time preference, but also risk preferences are diverse.

    I agree that many kids make mistakes. I think there is an important role for their guardians. On that issue, moderate libertarians often accept that the government should help parents bring up their children (though I’m skeptical of the long-term value of nationalising parenthood). Either way, this argument leads to the conclusion that adults should not be pestered by smoking laws and taxes. 🙂

  10. “I don’t think he is against contact sport. And I don’t think he regards freedom as evil, probably just dangereous”.

    So he would like to propose a licensing scheme (with associated insurance) instead?

    I don’t see what the big deal is with smoking, so long as the state doesn’t have to support their medical bills. Encouraging the baby boomers to smoke might help solve the age demographic issue. Unless of course they die too slowly.

    Actually, I’d better keep quiet with this idea or Rudd will come up with this: http://www.telegraph.co.uk/news/newstopics/howaboutthat/5271376/Chinese-ordered-to-smoke-more-to-boost-economy.html

  11. So he would like to propose a licensing scheme (with associated insurance) instead?
    He’s proposed people register as smokers and buy their smokes under prescription or a similar based system. Why stop there? I’d go one better have them attach a star of David on all their clothes. LOL.

  12. You’re being a bit unfair – Harry has never said we should stay indoors, eat veggies, and pray. Some of his best posts IMHO are about him eating the local sealife and wildlife while attending conferences and surfing (paddling) at Bondi. His wine appreciation posts are also very good.

  13. What is more important to me than time preference is time inconsistency. There is no reason to say at any age, a person’s preferences would be their “best”. Harry, have you found a way, otherwise to determine this?

    I am sure a lot of older/old or even ageing people also misrepresent risks they took, and potential payoffs. Some may have taken a massive risk with a massive payoff, but treat it as riskless and underestimaete the benefits they received.

    If time inconsistency wasn’t a problem, people would notregret risky behaviour as the “correct” amount would be self selecting, also people would be more objective in backward looking analyses of their decisions.

    Harry is only right if he knows he is making the best decision for everyone, based on a totally objective prism he views his experience and knowledge through.

    I just don’t think it is possible.

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